Prof. Bokpin, IEA support abolition of taxes - But argue betting tax be maintained

A Professor of Finance, Godfred Bokpin, and a public policy think tank, the Institute of Economic Affairs (IEA), have urged the simplification of the tax regime to make it taxpayer-friendly.

In an interview yesterday, Prof. Bokpin said the government promised that it would move the economy from taxation to production and that the 2024 budget should give meaning to that.

Also, the IEA in a policy brief in the run-up to the presentation of the budget said “high, multiple and complex taxes risk raking in less revenue, due to evasion, than a simpler and less complex system.” 

Prof. Bokpin, an economist and professor of finance at the University of Ghana, and the IEA supported the government’s move to abolish some taxes, encouraging it to adopt, administratively, digitalisation and innovative measures as well as expenditure rationalisation to close the revenue gap.

As part of a raft of proposed measures, the IEA said the National Democratic Congress (NDC) government’s promised abolition of the E-Levy, Covid-19 Levy, Emissions Tax were in order because those taxes were either nuisance or obsolete taxes.

“However, the Betting Tax is useful for both revenue and deterrence purposes and should be retained, although it can be reduced from 10 per cent to five per cent,” the IEA said.

Like the IEA, Prof. Bokpin also wants the government to pull the brakes on completely scrapping the Betting Tax, saying, “The Betting Tax, I have a different view. So, the government should take another look at the Betting Tax”.

“It hasn't brought in that much, but we should be mindful of the behavioural aspect of betting and its implication for our economy. So that should guide the government in how they proceed with the Betting Tax.

Digitalisation to bridge gap

In addition, Prof. Bokpin said the government should make use of data, digitalisation, greater administrative and compliance reforms and “I think the fiscal side will be taking shape.”

The IEA added that the revenue loss expected from abolition of the taxes could be offset through other compensatory measures, including plugging the numerous tax loopholes (trade mis-invoicing, tax exemptions, transfer pricing, under-collected property taxes and tax evasion).

It added that broadening the tax base by using digitisation to increase the formalisation of the economy, as well as improving the efficiency of tax administration through the use of modern technology would fix the revenue losses. 

Economist

Prof. Bokpin, for his part, supported the scrapping of the taxes because they were non-performing.

“As for the Emission levy, we have not collected anything from there,” adding that the charging agent, the equipment for the measuring of the emission, has not been adequately procured.

So not much from that point. So, we need to look at the tax regime and simplify it and make it more user-taxpayer-friendly,” he explained.

In addition to removing the E-levy and COVID-19, Prof. Bokpin said he expected the government to rationalise the Value Added Tax (VAT) regime by merging the straight levies with a standard VAT rate, moving away from the decoupling.

“Currently, the standard VAT rate is 15 per cent, then the straight levies.

The straight levies add directly to the high productive cost base of doing business,” he said.

While VAT can be recouped when imposed on inputs, straight levies such as the National Health Insurance Levy (NHIL) and the GETFund Levy cannot be reclaimed.

“So they should merge it with their standard VAT rate and peg it at 18 per cent or below.

There will be some revenue losses, but they can close that by improving on administrative and compliance reforms and deploying digitalisation in the revenue administration, especially in the VAT spectrum.

We need to do that,” Prof. Bokpin emphasised.

The professor of finance again wants the government to rationalise the exemptions and cut the wastefulness in the tax expenditures.

“Beyond that, we should look at property tax. We have not benefited optimally from the gold or the extractive industry.

So, if you look at our fiscal revenue from the extractive industry versus the extractive industry value added, we are not benefiting optimally from that.

So, we should look at the extractive sector fiscal regime,” he said. 

Prof. Bokpin said because the government had already shown leadership in cost-cutting, it had to demonstrate it in the 2025 budget.

Framework

He said the government should also look at providing a framework for de-risking the public sector balances through public-private partnerships in critical economic infrastructure delivery.

Prof. Bokpin stressed the need to rope in the private sector and other non-state actors so that it would be able to carry out the Big Push Agenda in infrastructure.

“I'm expecting the budget to signal a stronger leadership role in agribusiness, and agro-processing in our economic transformation. That's a way of making the budget job-rich. Our growth must be job-rich, not just GDP growth,” he said.

Prof. Bokpin said the government must be intentional about engineering job-rich growth, which would come from the labour-intensive sub-sectors of the economy and that was how it could create jobs. 

Innovation

The IEA also wants the Growth and Sustainability Tax, formerly the Fiscal Stability Tax, that was imposed on selected companies as far back as 2001, to raise revenue to help stabilise the economy abolished because it was obsolete.

New tax innovations should be explored, especially within the vast digital space. E-commerce tax, for example, provides a huge potential and should be fully exploited.

Additionally, it said consideration should be given to taxing excess profits of extractives and telecommunication companies as well as banks.

Providing context, the policy think tank said super-profit or windfall tax, as it is called, was common and had been adopted by several countries such as Australia, the United Kingdom, India, Italy, Hungary, the United States and several other EU member states and that Ghana should not be scared that imposing such a tax would drive away the companies.

“Many other countries are doing the same, so the companies have nowhere else to go. In any case, the super profit or windfall tax does not have to be in place forever,” the IEA posited.

Expenditure cuts

The think tank recommended that an efficient expenditure rationalisation strategy be part of the fiscal consolidation process, emphasising that there was always room for cutting wasteful expenditure, especially on goods and services, including those relating to administration, travel, medical services, utilities and entertainment.

However, it cautioned the government to know its limits and safeguard essential sectors, including health, education and infrastructure.

“Already, the capital expenditure (CAPEX) budget has been cut to the bone, being only three to four per cent of Gross Domestic Product (GDP), with growing recurrent expenditure. This situation is inimical to the long-term growth of the economy.

It is our expectation that the 2025 budget will mark the beginning of turning around budgetary allocations to capital CAPEX,” the IEA said. 

It further advised the government to check public corruption and inefficiencies as it could significantly increase the fiscal space needed to fund essential development projects and programmes.

“As evidenced by the Auditor-General’s reports, substantial amounts of government revenue get lost yearly through diversions, inflated costs and inefficiencies. It is, therefore, welcoming to hear President Mahama speak about establishing an Independent Value-for-Money Department (IVMD) to address these pitfalls,” the IEA added. 

Energy, cocoa

The institute also advised the government to tackle operational inefficiencies of the Electricity Company of Ghana (ECG) but it should not privatise the entire company.

In addition, it said, Ghana Cocoa Board (COCOBOD) should go through a comprehensive restructuring to cut operational costs, including relieving it of the responsibility of funding cocoa roads.

Monetary, financial sectors

The IEA recommended that the government adopt a multifaceted approach to stabilising the economy, particularly by addressing inflation and exchange rate volatility through coordinated fiscal and monetary policies.

It called on the Bank of Ghana (BoG) to go beyond conventional interest rate adjustments and work closely with relevant agencies to tackle key cost drivers such as food and energy prices.